This year has been a tough year in real estate for sellers, but the problem goes far beyond the real estate industry. Yesterday congress failed to pass a $700 billion dollar bail out package for financial institutions, and the Dow Jones Industrial Average lost 777 points, the largest single day crash in history. The Wilshire 5000 recorded a paper loss of $1 trillion dollars yesterday. The Feds recently took over Fannie Mae and Freddie Mac, holders of 70% of the mortgages in the U.S. WaMu bank files bankruptcy, the largest bankruptcy filing in history. [Note added Oct 9, 2008: Since the start of the year, investors have removed more than $81 billion from stock mutual funds according to the New York Times.] And there is much more to come.
What does all this mean?
Right now we have 435 congressman and 100 senators arguing over what it means and what to do, and it seems many of them will vote based on getting re-elected. That sure doesn’t give me any warm fuzzies. Do you have any confidence in the collective intelligence of these guys?
Money managers and financial advisors are very stressed right now. Many of their clients are calling with strained voices, trying to be calm, but in truth, many are freaking out.
A couple of years ago, I was in a very trying time personally. I was running on a treadmill at my favorite gym, AnyTime Fitness. I had the treadmill set to 45 minutes, and I made the mistake of staring at the timer counting down. It moved incredibly slow–40 minutes and 35 seconds, 40 minutes and 30 seconds . . . I remember thinking, “Oh man, I’ll never make it. I’m already exhausted.”
Then a small voice in my head said, “Chuck, don’t run from the pain, embrace it. Don’t fear the worse, embrace it.” In that paradigm came a sense of relief and freedom.
Fear causes stress. Great fear causes great stress. Stress causes anxiety and compounds the fear. Mix in some confusion and you get frustration. Voila! Next comes anger. With stress, anxiety, fear, confusion, and frustration, you get depression. With depression you get sadness that produces deep pain, and if this is allowed to continue long enough, you get the next natural consequence–paralysis and you begin to disconnect emotionally.
No one on the face of the earth knows what all this economic chaos means, and none of us are going to figure it out with great understanding or develop ultimate strategies to avoid our personal struggles. In other words, there is no magic wand.
My point? Take a deep breath. Have faith. Make practical decisions to survive this turmoil. Get good advice from those you trust and who have wisdom. Do all that you can do, and then let the rest go. Here’s something to remember. You and I do not control the world.
If you’ve read from my past articles, you know I think that the stock market has a large gambling component. There are too many exogenous variables over which you have no control. Stocks can rise and fall on fundamentals, on a whim, on a rumor, or for no reason at all. If that isn’t gambling, what is? Some of the smartest mathematicians in the world have argued that there is order in chaos, even in the stock market. Maybe.
Besides the thousands of economic factors, there are human variables, such as incompetence (I give you the CEO’s of Fannie Mae, Freddie Mac, WaMu), CFO accounting fraud, misrepresentation, and manipulation.
We are in the toughest real estate market I can remember in 30 years. Yet real estate does not go “poof.” It will be there after the dust settles, although the market value certainly is down and may drop further. Of course, if a person didn’t really buy the real estate but got a maximum loan to leverage his investment, then it may be lost in a foreclosure, unless it is either rented or one has enough cash reserves to cover the mortgage debt. Still, real estate is NOT subject to the vagaries of the stock market we see now. The mortgage market is in chaos, but that is because of incompetence and greed. Real estate itself is one of the most secure long term investments a person can ever make.
In every economic crises, cash is king. Millions will be made by those with money and good credit to buy real estate in the right locations and by negotiating good deals. Those who stand by and do nothing when they could have, will pass up huge profit opportunities. [Another place millions is being made (and lost by amateurs) daily right now is in puts and calls, but that is beyond the scope of this brief article. Yes that is a form of gambling, too, but there are practical strategies that are conservative and that can result in huge returns in wild up and down markets.]
Conclusion: Stressing out serves no purpose at all. Blaming others serves no purpose. Take a deep breath. Get good advice. Make wise decisions. Let it go and be patient. And in the future, consider having more of your retirement investments in real estate with no mortgage debt. Imagine how low your stress would be now if you were in that position?
Last Updated on September 30, 2008 by Chuck Marunde
It is being said that no one person knows what has caused the panic, but actually everyone knows. Cash hasn’t disappeared from the face of the earth there is more now than ever before, it is simply a crisis of confidence. Nobody believes what the fat cat bankers say anymore especially to each other, so there becomes a log jam the other factor is of course the greed how many times have we been there. It is of course time to draw a line in the sand if these people make decisions based on greed in the future and this type of catastrophe happens they should be stripped of their assets at the very least. I know it won’t even make a dent in the problem however it will make them think.
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